What Is a TFSA?
- 1. TFSA (Tax Free Savings Account) The name says it all...
- 2. It’s like a savings account… You deposit money (called a "contribution"). You earn interest on that money. But... You pay NO TAX on income from the TFSA.
- 3. Think of the TFSA as a box… Into that box, you put cash. You can use that cash to buy stocks, bonds, GICs, etc. (or just hold the cash). Stocks, bonds, GICs, etc. usually grow faster than interest on saved cash. But no matter how big your stash grows, you will not have to pay tax on it...ever.
- 4. To sum up… REGULAR SAVINGS You put in cash. Cash generates interest income. Income is taxed. TFSA You put in cash. Cash generates interest income. Income NOT taxed.
- 5. What are the rules? You have to have a Social Insurance Number. You have to be over 18 years of age. You have to reside in Canada.* If you withdraw $5,000 you can’t put it back until the next calendar year. * If you move away from Canada and deposit money to your TFSA, you’ll have to pay tax on the interest earned.
- 6. OK, so what's the catch? No catch... Max $5,000 contribution per year. If you contribute more than $5,000 in a year, the government will penalize you. If you don’t contribute, your “contribution room” is carried over to next year.
- 7. Contribution Room… It’s listed on your “Notice of Assessment” from the government Miss a year: contribute $10,000 next year. Miss that year: contribute $15,000 year after that. And so on...
- 8. What if I want to withdraw? It’s your money: Take out as much as you want. Whenever you want. And you pay NO TAX.
- 9. No penalty for withdrawal? Nope. Let’s say, you have $5,000 in a TFSA and you need that money for… a downpayment on a condo a trip around the world whatever… Take it out…there’s no tax or penalty.
- 10. Here's a recap... REGULAR SAVINGS Cash only Growth = tax No deposit limit No withdrawal penalt y TFSA Cash + stocks, etc. Growth = no tax Deposit limit = $5k/yr No withdrawal penalty
- 11. Why does the gov’t allow this? To encourage you to SAVE!
- 12. Isn’t that what an RRSP is for? Yes but... An RRSP is for retirement saving. If you put money in an RRSP now, you reduce your income tax now. But when you withdraw that money (during retirement), you’ll be taxed. But you’re (usually) in a lower tax bracket and will pay less income tax at that time.
- 13. What about pension clawbacks? Federal: Neither growth of, nor withdrawals from the TFSA affect your eligibility for federal "income tested" benefits such as the Guaranteed Income Supplement or Canada Child Tax Benefit. Provincial: Impact on programs not yet known.
- 14. RRSP vs TFSA RRSP Cash, GICs, stocks... Contribution = Tax reduction. Withdrawals = Taxed. TFSA Cash, GICs, stocks... Contribution = No tax reduction. Withdrawals = Not taxed, ever.
- 15. Really…? Well… … income supplements are meant for the elderly poor... … and it's a bit hard to believe that future governments wouldn't want to claw some money back from people with large TFSAs. Just sayin'...
- 16. So where do I sign up for a TFSA? At your local bank. Where can I get more info? http://www.tfsa.gc.ca/tfsapamphlet-eng.html